There Are Four Rules to Invest In Share.

One of  our clients Naresh earns Rs 18 lakhs every year. He invests in stocks but lost a huge amount due to the fall in the market. When the market fell 55 per cent, the value of Naresh's portfolio had fallen by 70 per cent.

In a broking house, Naresh's relationship manager (RM) recommended him to invest in 38 shares. RM was of the view that the value of these shares would increase by 70 per cent in the next 12 months.

It had a list of 38 stocks with a target of 12 months. It also showed the percentage estimate of the stock moving above the current price. Naresh's RM had suggested that infrastructure stocks would do well for the next few years. Jaiprakash Associates had lost 90 per cent of its peak. Naren invested in midcap stocks to make up for the previous losses.

I asked Naresh to take this list from RM on the company's letterhead. After that, RM's calls stopped coming.

What do you do?

A stock broker makes money at a traded price. That's why most brokerage houses offer free advice. Keep in mind that whenever there is loss, it will be yours. If you do not want to lose your money, then follow some basic rules.

RULE-1.Study Tips Before Investing

   Do the litmus test. Before you invest, test the tips of any analyst for some time. Only then decide. Many brokerage houses boast of their large research team. Their daily reports come. How many of these must be right.

RULE-2.Do Research Before Investing, Not Later!

    Research the stock first before investing. Ask the broker for a detailed report on that. Invest only if the long-term prospects are good. Don't waste time on tips with trigger price and target price.

RULE-3.One Who Rises Fast Falls Fast

    Whenever a figure is seen at altitude, there is a huge possibility of progress. But one should be cautious when a stock has grown enough or there has been a significant rise in a sector. A higher PE ratio means that future growth rates are going to decrease.

RULE-4.Invest In Mutual Funds if There Is No Time

    If you do not have time to choose new shares in your portfolio, do not invest directly in the stock market. A lot of value can also be created by investing in a Systematic Investment Plan (SIP).